The Ratings Game: Carvana stock claws back despite ‘uniquely difficult environment’ that hit earnings

“We generally prepare for sales volume 6-12 months in advance, meaning we built capacity in most of our business functions for significantly more volume than we fulfilled in Q1,” the company said in its letter. “With our costs relatively fixed in the short term, the lower retail unit volume led to higher cost of goods sold per unit.”

Carvana is trying to work past its challenges, Chief Executive Ernie Garcia III said on the company’s earnings call. The company’s “logistics team has clear plans in several key areas” to bring its metrics back up to where they were and then “move significantly beyond them,” he told investors. Additionally, Carvana intends to build its selection of more affordable vehicles.

Shares were down as much as 25.7% earlier in after-hours trading Wednesday, according to Dow Jones Market Data, but they clawed back and were recently up 1.6% in the aftermarket. They declined about 9% in Wednesday’s regular session.

Carvana posted a net loss of $506 million in the latest quarter, compared with a loss of $82 million a year earlier. It reported a net loss of $260 million attributable to the company, whereas it generated a $36 million loss on the same metric a year before.

Carvana lost $2.89 a share in the quarter, compared with 46 cents a year prior. The FactSet consensus was for a $1.58 loss per share.

Revenue rose to $3.5 billion from $2.2 billion, while analysts tracked by FactSet were modeling $3.4 billion.

“While we faced a uniquely difficult environment in the first quarter, we are already seeing positive trends across our key metrics,” the company said in its shareholder letter.

Still, due to “current industry trends impacting customer affordability, high used-vehicle prices, rapid movements in interest rates, rapid increases in fuel prices and other macroeconomic uncertainty impacting the used vehicle market,” Carvana said that it would not be providing “specific numeric near-term guidance” for the balance of 2022.

Carvana was blunt in its shareholder letter, admitting that the quarter was “challenging” but noting that the company also sees an “opportunity” to improve the business in part due to “weaknesses” uncovered amid the current environment.

“While the quarter was undoubtedly a step backwards in our financial results, we will work hard to make it the marker of an even larger step forward in achieving our goal of becoming the largest and most profitable automotive retailer,” the letter said.

Separately, the company announced that it intends to offer $1 billion of a new series of perpetual preferred stock, as well as $1 billion of Class A common stock. Ernest Garcia II and Chief Executive Ernie Garcia III, along with entities controlled by them, have shown interest in buying up to $432 million in aggregate of the Class A common stock, the company said in a release.